Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

In this Discussion

Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

    Support MFO

  • Donate through PayPal

Tax Free investing for a taxable account?

We are in our 80's and want to find the best place to earn interest mostly tax free. We would appreciate any suggestions.


  • edited October 2019
    Hi @ron. The national tax free muni fund that I use is FLAAX.
  • @Old_Skeet: Good afternoon. I took a peek at Yahoo & this showed up.
    Morningstar Risk Rating★★★★
    Number of Years Up26
    Number of Years Down4
    Best 1 Yr Total Return (Feb 3, 2019)25.29%
    Worst 1 Yr Total Return (Feb 3, 2019)-13.85%
    How does best & worst return happen in same year ?
    Think I will check else ware .

  • Just goes to show, @Derf, that there's no free lunch.
  • edited October 2019
    May need to look at private A Or higher rated muni bonds.. Go to all bonds are high grade very low risks bankruptcy minimal

    Or buy good Muni bonds funds in Vanguard
  • edited October 2019
    @Derf, Thanks for stopping by and for your comment.

    I'm thinking that this is a typo ... Below is the link for the detail you referenced above. then click on the performance tab.

    Perhaps, they meant 02/03/2009.

    And, yes ... I owned this fund back then (2008 & 2009)... and the tax free muni's took a big hit along with most everything else. Remember ... The Great Recession? Many investors had to sell quality investments to meet margin calls. This forced asset valuations downward as there were little buyers to be found. As can be seen form the graph this fund became a great buy back during this time period.

    To see the graph and how asset values declined ... click on the below link and set the graph to max.

    Have a good one Derf ... and, thanks again for stopping by and making comment.

    I hope you are doing well?


  • Ron - two muni funds from Invesco Oppenheimer which have been much discussed are OPTAX and ORNAX. Both have strong historical records. However, the expense ratios are high and they both have loads (sometimes waived depending on your brokerage).

    Here's a list of all the 4 and 5 star muni mutual funds at Fidelity sorted by yield. Don't forget there are several good ETFs out there as well. I hope you find what you're looking for.!&ntf=Y&msr=4,5&ft=MBND_all&tab=ic&sortBy=FUND_PRFM_MTH_30D_YIELD

  • Thank you all for such helpful input. I will do some follow up on your suggestions. We are in a low tax bracket but are in our 80's I wondered how much in interest do I really need to make muny's worthwhile.
  • According to this piece in The Balance, the yields on AAA munis are typically about 80% of Treasury yields. I've seen figures that are a little higher, but that's in the right ballpark.

    What this means is that on average, unless you're in the 22% or higher tax bracket, munis aren't going to make much sense for you.

    Suppose you invest $1,000 in a Treasury yielding 2%. You'll get $20 in interest in a year. If you're in a 12% bracket, then you'll have $17.60 after taxes. If you're in the 22% bracket, you'll have $15.60 after taxes.

    If you'd invested in a muni yielding 80% as much, you'd have 80% x $20 = $16 interest. That's a good deal compared with the Treasury if you're in the 22% bracket, but not so good if you're in the lower 12% bracket.

    If you do a search on muni treasury ratio, you'll come up with sites with current data.
    R W Baird reports the current ratio (for 10 year maturity bonds) is 85%.
    Raymond James reports 83.5% (10 year), and says that last week the ratio was 80.2%.

  • edited October 2019
    There's one more tax-related benefit to munis to consider. If your income is fairly limited, tax-free income instead of taxable could keep the taxable income on the federal return low enough to put the 0% tax rate for long cap gains and qualified dividends into play. It'd depend on your exact situation how much (if any) impact beyond the avoided tax on the muni income a given level of muni investment/income would have.
  • Even if you are in a lower tax bracket, munis can be useful if they keep from bumping to a higher bracket. That is our situation. Although we are solidly in the 12% bracket, we’ve been doing Roth IRA conversions that push our total income close to the 22% bracket. If we had savings in taxable bonds rather than munis, we have to limit our Roth conversions to keep from reaching the 22% bracket.
  • BTW, we’ve been investing our munis in the following funds: FTABX, FLTMX and GHYAX. In addition, we have substantial holdings in TAIFX, American’s tax advantaged balanced fund, which invests in munis and dividend stocks.
  • Didn’t know about TAIFX, @Tarwheel. Has it always been a fund of funds? I was surprised to learn that it is NTF at Schwab. My balanced fund is Bruce, and it’s not tax-advantaged at all.
  • As far as I know, TAIFX has always been a fund of funds. It is similar to Wellesley Income in risk and returns but much more tax efficient.
  • The closest Vanguard match to TAIFX would be VTMFX. Unlike Wellesley it uses muni bonds for its fixed income sleeve. Also, while TAIFX and VTMFX have roughly 50/50 asset allocations, Wellesley's is closer to 40/60 (bond heavy).

    VTMFX manages its equity holdings directly, so it can control cap gains a bit better than TAIFX which holds equity funds that are not tax-sensitive. This is reflected in a somewhat better tax cost ratio over the past 1 and 3 years as calculated by M*.

    TAIFX tax cost ratios:
    VTMFX tax cost ratios:
  • VTMFX is a great option if you have Vanguard accounts.
  • USBLX is another choice
  • Tarwheel said:

    VTMFX is a great option if you have Vanguard accounts.

    I have been doing some research and liked VTMFX as MSF suggested which I can buy at my Schwab accounts. Since most of my cash is in our taxable account and I would like to keep taxes low as possible I would only consider another fund with lower than 30 to 50 percent equities and/or more value than growth.
    I appreciate comments from MSF and Tarwheel, very helpful.

Sign In or Register to comment.